2017 Moving Expenses & Employer Reimbursements [U.S. Tax Update]

    Sep 25, 2018 @ 12:40 PM / by Pat Jurgens

    Tax Relief for Certain Moving Expenses

    The United States Internal Revenue Service has announced transitional tax relief for certain moving expenses. This guidance (IRS Notice 2018-75) is for employer reimbursements made after December 31, 2017 for qualified moving expenses incurred for a work-related move that occurred prior to January 1, 2018.

    The Tax Cuts and Jobs Act changed the treatment of moving expenses beginning with 2018. Most work-related moving expenses are no longer deductible and no longer excludable from gross income, if reimbursed by the employer. Under the new tax law, reimbursements for moving expenses are now generally subject to withholding tax and reportable as taxable wages for U.S. tax purposes. Most employers are planning to cover the tax liability and will now ‘gross-up’ for the withholding tax obligations according to our PULSE SURVEY.

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    An Exception to the Rules

    The recent guidance from the IRS provides an exception to the new tax rules if the move occurred prior to 2018, but the employer reimburses the employee for these costs after 2017. These reimbursements are not subject to income tax and social security withholding. To qualify, the payments must be for expenses that would have otherwise been deductible if the employee had directly paid for them prior to January 1, 2018. Additionally, the employee must not have deducted the moving expenses on their personal tax return for 2017.

    If the employer had already treated the 2018 reimbursements of 2017 moving expenses as taxable and remitted withholding taxes, the employer can amend the U.S. payroll tax reporting (Form 941-X) and claim a refund.

    Moving expenses incurred after 2017 remain subject to the new tax rules– non-deductible if paid by the employee and taxable wages, subject to withholding taxes, if paid by the employer. Some employers are considering a lump sum allowance to reimburse employees for moving expenses as well as other costs. Lump sums can minimize the time spent managing and reimbursing expenses while providing flexibility to employees.

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    Topics: International Tax, lump sum calculator, Insights and Experience, Tax, lump sums, lump sum allowances

    Pat Jurgens

    Written by Pat Jurgens

    Director, Global Tax Research and Consulting Pat joined AIRINC in 2006, and directs AIRINC’s research and statistical analyses of international tax policies and supervises the production of our hypothetical personal income tax products. He is responsible for the international income tax guide and tax calculator products at AIRINC and consults with clients on tax equalization policy matters. Pat has 32 years of experience in the area of expatriate taxation and global mobility consulting. Prior to joining AIRINC, he spent 18 years with PricewaterhouseCoopers’ International Assignment Services practice, providing tax compliance and consulting services to multinational companies and their assignee employees. He received his B.S. in Business Administration (Accounting) from the University of Colorado. Pat is a Certified Public Accountant and a member of the AICPA and MSCPA societies.